Tennessee, Arizona Top List of States Paying Most in Sales Tax

August 10, 2012 - 3:01 PM

Meals Tax Opposition Rhode Island

Frank Daly prepares to dump tea into a basin of the Woonasquatucket River on Wednesday, March 21, 2012 in Providence, R.I., as part of a protest by restaurant owners against the governor's call to raise the state meals tax. (AP Photo/David Klepper)

(CNSNews.com) – Tennessee, Arizona, Louisiana, Washington, and Oklahoma have the highest combined state and local sales tax rates, according to the Tax Foundation’s mid-year report based on the highest to lowest combined local and state sales tax rates.

Tennessee charged the most (9.43 percent), followed by Arizona (9.12 percent), Louisiana (8.86 percent), Washington (8.83 percent), and Oklahoma (8.68 percent).

Hawaii, Maine, Virginia, Wyoming, and Wisconsin appeared at the bottom of the list with combined rates of 4.35 percent, five percent, five percent, 5.18 percent, and 5.43 percent, respectively.

Among the states with the highest statewide sales taxes were California (7.25 percent) and Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee (each with seven percent state sales tax rates).

Alabama, Colorado, Louisiana, and New York had both the lowest statewide sales taxes and the highest average local sales taxes. Colorado carried a 2.9 percent statewide sales tax while Alabama, Louisiana, and New York each had a four percent statewide sales tax rate.

Louisiana (4.86 percent), Colorado (4.52 percent), New York (4.48 percent), Alabama (4.37 percent), and Oklahoma (4.18 percent) topped the list for the highest local sales taxes on average.

Mississippi assumed the spot for the lowest average local sales tax. The only city in Mississippi with any local sales tax is Elvis Presley’s birthplace of Tupelo, which held a rate of 0.004 percent.

While only five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) do not charge any state sales tax, Alaska and Montana do allow localities to enact their own local sales tax rates.

Wrengell, Alaska’s low population of 2,369, according to the U.S. Census Bureau, paid the highest local sales tax at a rate of seven percent.

In reference to neighboring municipalities competing for business on the basis of sales taxes, the report stated, “Avoidance of sales tax is most likely to occur in areas where there is a significant difference between two jurisdictions' sales tax rates.

“Research indicates that consumers can and do leave high-tax areas to make major purchases in low-tax areas, such as from cities to suburbs. For example, strong evidence exists that Chicago-area consumers make major purchases in surrounding suburbs or online to avoid Chicago's 9.5 percent sales tax rate,” it added.

The report added, “State and local governments should be cautious about raising rates too high relative to their neighbors, because doing so will amount to less revenue than expected, or in extreme cases, revenue losses despite the higher tax rate.

The Tax Foundation noted in its report that some states exempt some products from sales tax. For example, in some states groceries are non-taxable while in other states grocery products are taxed at a reduced rate or not taxed at all.

The report also adds that sales taxes are only one part of an overall tax structure and should be considered in context with state and local income tax rates.

Rank             Combined State & Local Rates

Tennessee                  1                    9.43%

Arizona                      2                    9.12%

Louisiana                   3                    8.86%

Washington               4                    8.83%

Oklahoma                  5                     8.68%

Arkansas                    6                     8.65%

New York                  7                     8.48%

Alabama                    8                     8.37%

Kansas                       9                     8.26%

Illinois                      10                    8.22%

Texas                        11                    8.14%

California                  12                   8.13%

Nevada                      13                   7.93%

Missouri                    14                   7.75%

Colorado                    15                  7.42%

New Mexico              16                  7.24%

Minnesota                  17                  7.17%

South Carolina           18                  7.12%

Mississippi                 19                  7.00%

Indiana                       20                  7.00%

Rhode Island              20                  7.00%

New Jersey                22                  7.00%

North Carolina           23                  6.87%

Georgia                      24                  6.87%

Iowa                           25                  6.82%

Ohio                           26                  6.80%

Nebraska                    27                  6.77%

Utah                           28                  6.68%

Florida                       29                  6.62%

North Dakota             30                  6.42%